The U.S. Government Remains Silent On Saving Silicon Valley
Ever since the crash of the Silicon Valley bank, the U.S. government has been taking steps to ensure other banks don't follow suit with the historic failure. It even guaranteed customers of the collapsed bank could recover their money. Still, it would do nothing to revive the failed institution and ensure the American banking system is safe and well-capitalized.
The U.S. government announced its intervention through Treasury Secretary Janet Yellen on Sunday after public controversies trailed the crash of Silicone Valley, causing many to worry that other banks may be victims of the circumstances that forced the bank to shut down.
“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the Treasury Department, Federal Reserve, and FDIC agencies said in a joint statement.
Although regulators tried to save Silicone Valley by sourcing for buyers who could help prevent the shutdown all through the weekend, its executives had worries that the impending crash would affect other banks since the state government refused to intervene. With the new development of an intervention by the U.S. government to help customers recover their funds, big companies like Sunrun and California's wine industry have no reason to fret about an adverse effect on their business since The Federal Deposit Insurance Corporation provides insurance on every bank deposit up to $250,000.
The Treasury Secretary reaffirmed the government's stance to protect customers and not revive the bank in an interview with CBS on Sunday morning. She explained that the government wasn't going to handle the current situation like the financial crisis that happened in 2008.
“We’re not going to do that again, but we are concerned about depositors, and we’re focused on trying to meet their needs,” she said, assuring customers of the failed institution.
What Led To The Crash Of Silicon Valley Bank?
The Santa Clara bank in California is the second largest bank to record this kind of failure since the collapse of a big bank in 2008. It is known for serving venture capitalists, technology workers, and big brands nationwide.
The troubles of the nation's 16th largest bank began when most of the tech companies it serviced had to withdraw their deposits because they needed it for financing. It began to sell bonds at a lesser price in a bid to mitigate the impact of the withdrawals and the act gradually led to its financial crisis as most of the assets it owned started to lose market value with increasing rates.
“The problems with the tech sector aren’t at the heart of the problems at this bank,” the treasury secretary explained.
While considering a way forward, the secretary suggested regulators consider selling Silicone Valley to another institution. One of the FDIC chairs during the 2008 crisis, Sheila Bair seemed to agree as she recalled that the agency had to "sell the failed bank to a healthier one." She explained that since the buyer would have to take responsibility for covering the uninsured because they need the franchise value of the large depositors, it was the best option available.
However, she doubted it would be enough intervention for Silicone Valley because it was "a liquidity failure" and there wasn't ample time for marketing and selling. Regulators have seized the bank's assets but the treasury secretary says she's been working with banking regulators to design effective policies to address the situation.
The house speaker, Kevin McCarthy also told Fox News that he hopes the bank can be purchased eventually.
“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.